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Volbeat Corporation has bonds on the market with 18.5 years to maturity, a YTM of 11 percent, a par value of $1,000, and a current price of $938. The bonds make semiannual payments. What must the coupon rate be on the bonds?
Mars, Inc. is considering the purchase of a new machine, which will reduce manufacturing costs by $5,000 annually. Mars will use the MACRS (5-year class) method to depreciate the machine, and it expects to sell the machine at the end of its 5-year li..
In a stock swap, the acquiring firm issues shares of stock in order to pay for the acquistion. a leveraged merger is between unrelated firms. a leveraged buyout involves creating a new company out of part of your company and then selling shares of th..
A stock is currently selling for $79 per share. A call option with an exercise price of $83 sells for $3.95 and expires in three months. If the risk-free rate of interest is 2.8 percent per year, compounded continuously, what is the price of a put op..
Unbiased Expectations Theory Suppose we observe the following rates: the interest rate for the next year is 6% and the one-year interest rate expected one year from now is 9%. What is the annual interest rate on a two-year loan?
A 30-year corporate bond sold to investors at par ($1000) with a 10 percent coupon rate is called sixteen years later at a 12 percent call premium. At the time of call, prevailing rates on comparable securities were 8 percent. If the bond's holder re..
Stock A has a standard deviation equal to 20% and an expected return of 11%. Stock B has a standard deviation equal to 25% and an expected return of 14%. The covariance of the returns on Stock A and Stock B is 0.0100. What is the expected return of t..
The constant-growth dividend discount model (DDM) can be used only when the ___________.
Company Z issued bonds with detachable warrants several years ago. Each warrant allows the holder to purchase one share of stock at $30 per share. The stock has a beta of 1.3. Calculate the exercise value of the warrants if the price of the und..
A junior employee, who just turned 25, decides to set up a personal retirement fund to supplement her government-funded pension plan during her first 20 years of retirement. She wants to have an annual income of $50,000 starting when she turns 65 and..
A firm has decided to replace a major piece of industrial equipment. The equipment costs $690,000 to purchase and install and is expected to have a useful life of 5 years, after which it will be sold on the open market and is expected to have a salva..
What is the total after-tax annual cost of a machine with a first cost of $45,000 and operating and maintenance cost of $0.22 per unit produced? It will be sold for $4,500 at the end of five years. Production is 750 units per day; 250 days per year. ..
The real risk-free rate, r*, is 1.5%. Inflation is expected to average 3.25% a year for the next 4 years, after which time inflation is expected to average 4.9% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yie..
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